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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: DR. MANISH BORAD
order
: October 18th, 2022 आदेश ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2016-17 is directed against the order passed u/s 250(6) of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short ld. “CIT(A)”] dated I.T.A. No.: 297/Kol/2022 Assessment Year: 2016-17 M/s. Vishal Enclave Pvt. Ltd. 11.11.2021 arising out of the assessment order framed u/s 143(3) of the Act dated 28.12.2018.
Registry has informed that the appeal is time barred by 136 days. Condonation application has been filed by the assessee. After perusing the same, I find force in the reasons mentioned therein and are satisfied that the assessee was prevented for reasonable cause in filing the instant appeal within statutory time limit. I, therefore, condone the delay and admit the appeal for adjudication. 3. Brief facts of the case are that the assessee is a private limited company engaged in business. Income of Rs. 13,350/- declared in the e-return filed on 19.01.2018. Case selected for scrutiny through CASS followed by serving of notices issued u/s 143(2) & 142(1) of the Act. Reasons for selection for scrutiny on complete basis was due to high-risk transactions carried out by the assessee in the bank account held with Vijaya Bank. The submissions made by the assessee were considered but not found acceptable and ld. AO came to a conclusion that the assessee company is a paper/shell company engaged in providing accommodation entries and in absence of any tenable information for the nature of receipt of funds and immediate transfers lead to the conclusion that the assessee company is acting as a conduit of funds with no real business and only commission income is earned on such transactions. Ld. AO accordingly computed income of the assessee at Rs. 16,96,000/- arrived at by applying commission @ 2% of the total deposit in the bank account of Rs. 4.24 Cr. and similarly of the payment of Rs. 4.24 Cr. i.e. total transaction value of Rs. 8.48 I.T.A. No.: 297/Kol/2022 Assessment Year: 2016-17 M/s. Vishal Enclave Pvt. Ltd. Cr. and with other minor disallowances income computed at Rs. 17,51,000/-.
Aggrieved, the assessee preferred appeal before ld. CIT(A) and filed detailed submission stating that the assessee is not an accommodation entry provider and it is regularly and consistently engaged in investment and financing business and most of the transactions carried out during the year are with the group concerns. However, ld. CIT(A) failed to find any merit in assessee’s submissions and the finding of ld. AO was confirmed.
Aggrieved, the assessee is in appeal before this Tribunal raising the following grounds of appeal: “1. For that in view of the facts and in the circumstances the Ld. CIT(A) erred in not holding the order passed by AO u/s 143(3) as bad and illegal and in view of the facts and in the circumstances it may be held accordingly.
2. For that in view of the facts and in the circumstances the Ld. CIT(A) was wholly unjustified in affirming the action of AO in treating the transaction between the appellant and other related concerns as accommodation entry and treating the appellant as alleged accommodation entry provider merely on the basis of assessment made in case of such other persons and such action of the AO was without any tangible material and merely on incorrect assumption and presumption and in view of the facts and in the circumstances it may be held accordingly.
3. Without prejudice to Ground No. 2 above, the Ld. CIT(A) was wholly unjustified in affirming the action of AO, without appreciating the fact that the entire treatment by AO was without providing opportunity to the appellant to cross-examine the person / persons on basis of which such incorrect belief was held by AO and in view of the facts and in the circumstances it may be held accordingly.
4. Without prejudice to Grounds No. 2 & 3 above, the Ld. CIT(A) was wholly unjustified in affirming the action of AO of earning commission I.T.A. No.: 297/Kol/2022 Assessment Year: 2016-17 M/s. Vishal Enclave Pvt. Ltd. from the alleged accommodation entry and in view of the facts and in the circumstances it may be held accordingly.
5. For that your petitioner craves the right to put additional grounds and/or to alter/ amend/ modify the present grounds at the time of hearing.”
6. The grievance of the assessee in the above grounds are that the assessee is not an accommodation entry provider and ld. CIT(A) erred in confirming the action of ld. AO who has not brought any tangible material on record and has merely acted on incorrect assumptions and presumptions. The assessee also raised the grounds stating that no opportunity was provided to cross examine the person/persons on the basis of which such incorrect belief was adopted by ld. AO. Ld. Counsel for the assessee further referred to the paper book running into 131 pages containing details of various submissions filed before ld. AO including the income tax return and financial statements of the companies which have transacted with the assessee company during the year. Reference was also made to the audited financial statements as well as the assessment order of the assessee company for AY 2013-14 framed u/s 143(3) of the Act wherein the Department has not treated the assessee as an accommodation entry provider/shell company and the assessee is assessed to be one engaged in the business of share investment.
7. Per contra, ld. D/R referred to a chart containing the details of various companies with whom the assessee has transacted during the year and stated that most of the companies are located at the same address and common Directors, majority of companies have very low income and Auditor of all these companies is same.
I.T.A. No.: 297/Kol/2022 Assessment Year: 2016-17 M/s. Vishal Enclave Pvt. Ltd.
I have heard rival contentions and perused the records placed before me. Through this appeal, the assessee’s contention are two- fold, firstly, ld. CIT(A) erred in holding it as an accommodation/entry provider/shell company and secondly, no opportunity of cross examination was provided regarding the alleged credible information received by ld. AO that the assessee company is managed by Mr. Mahendra Sethia.
On perusal of the records, specially the bank account owned by the assessee and also keeping into consideration the chart submitted by ld. D/R, I observe that the companies which have transacted with the assessee during the year are group companies. Mr. Saket Dalmia and Mr. Amit Dalmia are common Directors in P G Industries Ltd., N Construction Pvt. Ltd., A Constructions Pvt. Ltd. and Matrix Propcon Pvt. Ltd. Similarly, other members of Dalmia Group are Directors in Priceless Overseas Ltd. It remains an undisputed fact that the transactions in the said bank account held with Vijaya Bank are mainly between the group companies. The assessee has placed evidences of each and every company which have transacted with the assessee including their identity details, balance sheet, profit & loss account, cash flow statement etc. Had it been an accommodation entry provider or an entry operator, such details of the source of receiving funds and the application of the funds would be missing and generally in such cases commission income is computed on the unexplained transactions rotated through the bank accounts.
But in the instant case, complete details of the source of the funds received during the year as well as the amounts transferred I.T.A. No.: 297/Kol/2022 Assessment Year: 2016-17 M/s. Vishal Enclave Pvt. Ltd. to other companies has been filed by the assessee. Revenue authorities have failed to find any defect in such details. In the past for AY 2013-14 assessee’s case was assessed u/s 143(3) of the Act and the assessee has not been held to be entry provider but has been assessed to be engaged in business of share investment. This plea of ld. D/R that most of the companies are having meagre income and no source of funds is also not correct as in the case of P G Industries Ltd., returned income is 1.14 Cr. and in case of Priceless Overseas Ltd., returned income is 59.97 lakh. It is also not in dispute that the assessee has requested for cross examination but no such opportunity was provided to the assessee to cross examine Mr. Mahendra Sethia who claimed to have been managing the assessee company as an accommodation entry provider. And not providing of such opportunity of cross examination renders the assessment proceedings as invalid and bad in law as held by the Hon'ble Supreme Court of India in the case of Andaman Timber Industries v. CCE reported in (2015) 281 CTR 241 (SC).
I, therefore, under the given facts and circumstances, am of the considered view that since the assessee has explained the transactions carried out during the year in the bank account held in Vijaya Bank and the complete details of the deposits and withdrawal and the source and the documentary evidences in support thereof, the transactions, in my view are carried out in the regular course of business and by no stretch up imagination, the assessee company can be held as an accommodation entry provider/shell company. I, therefore, set aside the finding of ld. I.T.A. No.: 297/Kol/2022 Assessment Year: 2016-17 M/s. Vishal Enclave Pvt. Ltd. CIT(A) and delete the addition of commission income of Rs. 16,96,000/- made by ld. AO. In the result, grounds raised
by the assessee are allowed.
12. In the result, the appeal filed by the assessee is allowed. Kolkata, the 18th October, 2022. Sd/- [Manish Borad] Accountant Member Dated: 18.10.2022 Bidhan (P.S.) Copy of the order forwarded to:
1. M/s. Vishal Enclave Pvt. Ltd., C/o. Salarpuria Jajodia & Co., 7, C.R. Avenue, 3rd Floor, Kolkata-700 072.
2. ITO, Ward-13(4), Kolkata. 3. CIT(A)- NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata.